MORNING VIEW: LME base metals prices mixed while participants await US GDP data

With little changed in the big picture, markets continue to oscillate while they consolidate - US and European equity indices were lower on Thursday July 25 and most Asian equities were weaker this morning.

  • London Metal Exchange lead price remains directional, other base metals are working sideways.
  • US second-quarter GDP data out on Friday likely to set the tone.

Base metals
Volume on the LME remains low, with 2,977 lots traded as at 07.18am London time, but while broader markets were weaker, the LME three-month base metals were for the most part slightly higher with the complex up by an average of 0.2%.

Nickel was leading on the upside with a gain of 0.6% while the price rebounds following the recent downward correction and lead continued to push higher, with its price up by 0.5% at $2,107 per tonne. Copper was up by 0.2%, with the market consolidating after last week’s run-up to $6,170 per tonne.

In China, base metals prices on the Shanghai Futures Exchange were quite mixed; October nickel was still under pressure with a drop of 1.6% – this in response to the 3.4% fall in the LME’s three-month nickel price on Thursday. September zinc was down by 0.5%, while September lead was up by 1%. September copper was little changed at 47,040 yuan ($6,842) per tonne, down by 20 yuan per tonne from Thursday’s close.

Spot copper prices in Changjiang were down by 0.1% at 46,860-46,970 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 7.84, slightly weaker than the 7.85 reading from Thursday.

Precious metals
Spot precious metals prices were generally correcting and consolidating on Friday morning with spot gold up by 0.1% at $1,416.94 per oz and silver off by 0.1% at $16.41 per oz, which puts the gold/silver at 1:86.

The December gold and silver contracts on the SHFE were weaker by 0.6% and 1.1% respectively.

Wider markets

The spot Brent crude oil price was recently at $63.50 per barrel, compared with $63.36 at a similar time on Thursday.

The yield on benchmark US 10-year treasuries was firmer this morning at 2.0664%, compared with 2.0434% at a similar time on Thursday. The German 10-year bund yield has stopped falling for now and was recently at -0.3790%, compared with -0.3810% on Thursday morning.

In equities, Asian indices were generally weaker on Friday: Nikkei (-0.45%), Hang Seng (-0.42%), Kospi (-0.40%) and ASX200 (-0.36%), while the CSI 300 bucks the trend with a 0.22% gain.

This follows a weaker performance in western markets on Thursday, where in the United States the Dow Jones Industrial Average close down by 0.47% at 27,140.98, and in Europe where the Euro Stoxx50 closed down by 0.64% at 3,510.15.

The dollar index has pushed higher and was recently quoted at 97.88, the index breached resistance at 97.77 on Wednesday and 97.82 on Thursday – next resistance is the double top from April (98.35) and May (98.38).

The other major currencies we track were weaker: the Australian dollar (0.6935), euro (1.1135), the Japanese yen (108.62) and sterling (1.2427). The Chinese yuan was rangebound at 6.8800.

Key data
The market will focus on the first reading of US second quarter gross domestic product (GDP) data, consensus is for growth of 1.8%, down from 3.1% in the first quarter. Whether such a drop, if transpires, dampens confidence in the broader markets remains to be seen, or would such a reading fuel expectations for an even bigger rate cut by the US Federal Open Market Committee when they make their decision on July 31? Data on US GDP price index will also be released on Friday.

Today’s key themes and views

For now, most of the base metals are consolidating recent gains, the exceptions are lead, that is still pushing on with its advance, and tin, which is consolidating after setting fresh multi-year lows on Wednesday. Overall, we feel the base metals have either found bases, or soon will, and then it will be a case of waiting for the demand outlook to improve and that is likely to take a new trade deal between China and the US. We wait to see whether next week’s US-China trade talks make any progress. A poor US GDP reading later today, may well give the US some sense of urgency.

Gold prices are consolidating after setting fresh multi-year high last week. The stronger dollar is no doubt a mild headwind. Overall, given the uncertainty surrounding trade, Iran, Brexit, global growth and the sustainability of record breaking US equities, there plenty of reasons why investors may like the insurance that gold offers. Expect some volatility when US GDP data is released.

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